The U.S. trade deficit fell in January, continuing the narrowing trend caused by the trade war with China while showing the first signs of the impact of the coronavirus.
The deficit declined $3.2 billion, from $68.7 billion in December, according to preliminary data released Friday by the U.S. Census Bureau. Both U.S. exports and imports decreased from December, but imports declined more steeply.
The U.S.- China trade war, which disrupted global trade last year, reduced both imports and exports. In January, the coronavirus outbreak, closely following the “phase one” agreement on the trade war in January, also decreased both imports and exports.
“A lot of our companies are taking on manufacturing in China,” said Steve Armstrong, vice president of international trading at M. Holland Co. in Northbrook, Ill. Apple, for example, does a lot of its manufacturing in China, he said.
Narrowing the deficit, especially the sharp decrease in imports, was one of the Trump administration’s goals in the trade war. However, most economists argue that lower imports indicate Americans are spending less, which won’t help the economy grow.
In “phase one” of the trade deal, China agreed to buy at least $200 billion worth of U.S. goods, including farm, energy and manufactured products, which would especially benefit farmers by boosting agricultural imports. But the coronavirus outbreak could delay the deal or force it to be renegotiated.
Since late January, China has put many cities on lockdown and closed a large number of factories. Importing goods from China has become very difficult, especially for U.S. manufacturers that import supplies. Laura M. Baughman, president of Trade Partnership Worldwide, a Washington-based consulting firm said the coronavirus would have “a pretty bad effect on the global economy, especially if it lasts a lot longer.”
“So many parts of supply chains now are produced in so many different countries, and Korea and China in particular,” Baughman said. “Those countries are effectively shut down. Until they get back in operation, supply chains are disrupted, as are transportation linkages and, I mean, just the whole ripple effect.”
Some experts suggested it was too soon to know how the coronavirus would influence future U.S. trade.
“I think realistically, the coronavirus’ influence on trade is a little bit unseen,” Armstrong said. “We don’t know if it’s going to get worse or better in the short term, but we believe this is a short-term situation. I don’t think it’s going to, long term, hurt our economy as it’s hurting the China economy today.”
Baughman agreed that “people are just sort of waiting to see how all of the dust settles.” He said: “Everybody understands that China will have a tough time doing the purchase part of that agreement in the short run. So we’re waiting.”